Local Content Law In Nigeria And Its Implication On Nigerian Oil And Gas Industry
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Transcript of Local Content Law In Nigeria And Its Implication On Nigerian Oil And Gas Industry
1 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
PART A: INTRODUCTION
The Nigerian Oil and Gas Industry Content Development Act which has just been signed into
law is the cumulative result of decades of attempts by the government and stakeholders in the
petroleum industry to ensure that the industry provides local value and maximized benefits to
Nigerians. Since the discovery of oil in commercial quantities in Oloibiri, Rivers State by Shell
Corporation in 1957, the Nigerian oil and gas industry has grown to become a major player in
the international oil and gas market. Today, 53 years later, Nigeria is the largest oil producer in
Africa and the eleventh largest in the world, averaging 2.5 million barrels per day, with proven
reserves of over 35 billion barrels and is currently the 5th largest exporter of crude oil to the
United States of America with oil revenue making up over 90% of Nigeria's foreign currency
receipts. Furthermore, according to the Organization of Petroleum Exporting Countries (OPEC),
the oil sector provides 20 percent of the country's gross domestic product (GDP) and around 65
percent of budget revenues. Crude oil exports from Nigeria are currently estimated to be around
2,098 barrels per day, while natural gas exports total 20.55 billion cubic metres.
Despite this impressive profile however, the Nigerian oil and gas sector's contribution to
national GDP, i.e. Gross Domestic Product1, has been minimal. According to energy reports in
2008, the sector accounted for less than 38% of national GDP. This has been a direct
consequence of the noticeable absence of indigenous participants in the industry given that over
80% of the goods and services needed for projects were being imported from foreign countries.
A good factual example to illustrate how indigenous participation in an industry can contribute
to the country’s economy or GDP is a furniture project executed by Mobil Oil Nigeria Limited
(although this project had nothing to do with the production of oil and gas)2. They were owners
of Mobil House in Lagos (which in the opinion of G. Aret Adams, is the most imposing and fit-
for-purpose office building in Nigeria today) and they wanted to duplicate in their offices the
same type and quality of furniture that the company had in its headquarters office in the U.S.A.
Mobil gave the directive to its local Management as well as to a committed expert, who
surveyed all the local furniture factories and textile mills throughout Nigeria. Mobil then
selected a few of the best factories and negotiated with the owners, and then awarded the
contracts to produce all the furniture in the Mobil house. This tremendously improved the
1 Gross domestic product means the total value of all goods and services produced within a country in a year, minus net income from investments in other countries, Encarta Dictionaries.? http://www.nigcontent.com/index.php?option=com_content&task=view&id=12&Itemid=502 G. Aret Adams, Nigerian Oil and Gas Industry Local Content Objectives and Guidelines. A Petan Perspective.
2 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
capacity of those local factories to improve their production capabilities and to compete
effectively in the international market. Furthermore, for the greater part of the last four decades,
the Nigerian oil and gas industry has been dominated by major international oil companies with
large numbers of expatriate workers being deployed to carry out projects in various onshore and
offshore locations in the country. This preponderance of expatriate workers has resulted in a
paucity of jobs, skills development, capacity building and utilization for the indigenous
workforce and in the long run, a lack of sustained national economic development. In
recognition of this deficiency, the Federal Government of Nigeria has in the past, made efforts
to domesticate a significant portion of economic derivatives from the oil and gas industry by
encouraging the development and deliberate utilization of Nigerian human and material
resources in the Nigerian oil and gas sector. Such efforts led to the formulation of a number of
local content friendly policies in the oil and gas industry; the establishment of the Nigerian
Content Division (NCD) of the Nigerian National Petroleum Corporation (NNPC) to monitor
and give effect to the Nigerian Content Policy (NCP); and the formation of the Nigerian
Association of Indigenous Petroleum Exploration Companies to mention a few.
With inception from early 2000, the Nigerian Content Policy envisioned by the Nigerian
National Petroleum Corporation served as the basis for measuring and ensuring local
participation and job creation for Nigerians in the oil and gas industry3. Regulation 26 of the
Petroleum (Drilling & Production) Regulations made pursuant to Section 9 of the Petroleum
Act Chapter P10 Laws of the Federation of Nigeria 2004, is a precursor to the Nigerian Content
Policy, as it prescribes that a licensee of an oil prospecting license and a lessee of an oil mining
lease must submit an employment plan for Nigerian employees within 12 months of the grant of
a license or the grant of a lease, respectively. Consequently, these objectives have been
incorporated into the drafting of oil and gas agreements, such as the joint operating agreements
(JOAs), and production sharing contracts (PSCs), and rehashed in the Nigerian Content
Directives (NCD), issued by the Nigerian National Petroleum Corporation. The aim of the
Nigerian Content Directives (NCD) issued by the Nigerian National Petroleum Corporation
(NNPC) is to oversee the implementation of the Nigerian Content Policy4. The NCD sought to
transform the oil and gas industry into the economic engine for job creation and national growth
by developing in-country capacity and indigenous capabilities. It was designed to ensure that a
greater proportion of the work was done in Nigeria, with active participation of all sectors of the
3 http://www.nigcontent.com/index.php?option=com_content&task=view&id=29&Itemid=564 Section 41
3 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
economy. In addition, an ultimate aim is that Nigeria is positioned as the hub for service
delivery within the West African sub-region and beyond. Although the NCD did not have the
force of law, it had far-reaching effects with NNPC as senior partner in most oil and gas
projects, and aimed to increase local content value in the provision of materials, services and
equipment to the local oil and gas industry to 70 per cent by 2010. It therefore required
compliance by tenderers seeking to execute contracts with NNPC participation. While these
efforts made by the Federal Government resulted in some improvements in the industry, local
content development in the Nigerian oil and gas sector still remained unsatisfactorily low and
continued to inhibit the growth potential of the industry. However in 2010, the administration of
(then Acting) President Goodluck Jonathan brought about renewed efforts towards the
promotion of local content in the oil and gas sector. A major stride in this regard was the
passage into law of the Nigerian Oil and Gas Industry Content Development Bill (The Local
Content Act) by President Jonathan on the 22nd of April 2010. The Local Content Act which
takes precedence over all existing content laws and regulations was enacted with the aim of
providing for the development of indigenous content in the Nigerian Oil and Gas Industry by
ensuring that henceforth, priority would be given to indigenous services companies. Under the
Act, the utilization of Nigerian human and material resources for the provision of goods and
services to the petroleum industry within acceptable quality, health, safety and environment
standards are made obligatory in order to stimulate the development of indigenous capabilities.
PART B. WHAT IS LOCAL CONTENT?
Local Content in the oil and gas industry has increasingly been utilized as a tool for ensuring
sustainable development in oil and gas producing countries. Local Content basically means the
development of local skills, technology transfer, use of local manpower and local
manufacturing. Local Content also essentially means the promotion of the growth of local
businesses and services in such countries by mandating the optimal utilization of local goods
and services in the execution of projects in the country.
The phrase ‘Local Content’ is quite the same as the phrase ‘Nigerian Content’ and the two are
most at times used interchangeably. Nigerian Content has been given a meaning in the Nigerian
Content Development Act, 2010 in the interpretation section5 to mean;
5
4 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
“ the quantum of composite value
added to or created in the Nigerian economy by a systematic
development of capacity and capabilities through the
deliberate utilization of Nigerian human and material
resources and services in the Nigerian Petroleum Industry.”
The plain or literal construction of the above definition given by the Nigerian Content
Development Act is that Local/Nigerian Content signifies the quantity or amount of a
composition of useful or purposeful principles that are being introduced into the economic life
of Nigeria by a regular or methodically planned development of capacity and potentials through
the use of Nigerian human and material resources and services, which involves the supply of
services and products and; the employment of Nationals, in the Nigerian Petroleum/Oil and Gas
Industry. The stated intention of the law is to increase indigenous participation (otherwise
known as local content) in the Nigerian Oil & Gas sector.
Nigerian local content is also defined by the Nigerian Content Development policy as the
quantum of composite value added or created in the Nigerian economy through the utilization of
Nigeria’s human and material resources for the provisions of goods and services to the
petroleum industry in acceptable quality, health, safety and environmental standards in order to
stimulate the development of indigenous capabilities6. This definition is so because its aim is to
build indigenous capacity that will participate in the petroleum sector, as well as improve the
sector’s links with the domestic economy.
Babarisa remarked or opined that the Nigerian Content does not mean indigenization ( as
indigenization plainly means the act or process of causing something to originate from a
particular region or environment), but a deliberate making use of/utilization of Nigerian goods
and services, achieved through the engagement of local manufacturers and service providers.7
Furthermore, Local content should be determined in terms of value addition or input in Nigeria
(by local/National staff, local materials, local services and facilities) rather than by the
ownership of the company performing the value added activities.8 In other words, the using of
6 Hindle Christopher & Woldemichael, “A Push For Local Content” (2009) 29:1, Oil and Gas Investor, P. N-10. [Information extracted from 7 Babarisa A, NNPC: 30 Active Years, 1970-2007 (Octopus Communication Company, Lagos, 2007) p. 61. [Information extracted from 8?? Per Heum et al, “Enhancement of Local Content in the Upstream Oil and Gas Industry in Nigeria”, (2003) p.46. [Information extracted from
5 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
local inputs and developing capacity and potentials and competences in Nigeria can be
effectively done by a local subsidiary of a multinational, just as in the same capacity as a
Nigerian-owned company or a company in which a majority of the shares belong to Nigerians.
This is so as even the Nigerian Content Development Act in Section 24 permits for a joint
venture or partnership between a Multinational company and an Indigenous company.
Therefore, the Nigerian Content is more about indigenous/domestic service providers and not
foreign-owned. It is also noteworthy that the Nigerian/Local Content is not about contracts or
job creation, but a grand strategy by the government to open up the petroleum industry for
technical and effective participation.9
PART C. THE LOCAL CONTENT IN GOVERNMENT POLICIES.
HISTORY OF THE LOCAL CONTENT POLICY
In over fifty years since the discovery of oil in Nigeria, the petroleum industry has functioned as
an “enclave” economy, with very little linkages and contribution to the wider Nigerian
economy.10 Previous efforts to give effect to the local content policy include establishment of
various research, development, training, education and support funds; provisions in the
Petroleum Act11 on mandatory employment and training of Nigerians by petroleum operators,
provisions on technology transfer, local content utilization, recruitment and training of Nigerian
personnel contained in various contractual arrangements with International Oil Companies
(“IOCs”), and the establishment of a Nigerian Content Division (“NCD”) of the NNPC to
monitor and give effect to Nigerian government’s content policy. The NCD sought majorly, as
mentioned supra, to transform the oil and gas industry into the economic engine for job creation
and national growth by developing in-country capacity and indigenous capabilities. It was
designed to ensure that a greater proportion of the work was done in Nigeria, with active
participation of all sectors of the economy. In order to achieve these, it formed and implemented
policies and directives, some of which include;
9 A Presentation to the Department of Petroleum Resources (DPR) by Oil and Gas Service Providers Association of Nigeria (OGSPAN) 2009, p.18. [Information extracted from 10 According to NNPC’s Nigerian Content Policy Implementation Division (“NCD”), over 80% of work value in the industry is executed outside the nation’s shores. See also “Local Content Growth: The Role of NIPEX”, A presentation delivered at the Nigerian Content Summit in Oil and Gas/Exhibition, December 10, 2007. 11 Sections 26-29, Petroleum (Drilling and Production) Regulations CAP 10, LFN 2004
6 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
(1) Under the JOAs, i.e. Joint Operating Agreements, the operator is required to give
preference to a contractor that is organized under the laws of Nigeria to the maximum
extent possible as long as there is no significant difference in price or quality between
such contractor and others.
(2) Under the 2005 Model PSC, i.e. Production Sharing Contract, it was provided that
NNPC and the contractor shall aspire to maximize local content in all areas of petroleum
operations under the PSC. It also provided that there should be at least 80% and 85% of
the total number of persons employed in managerial, professional and supervisory
grades by the 15th and 20th year respectively.
Some of the goals of the NCD include;
(1) To achieve 45% local content in oil and gas spent by 2006.
(2) To achieve 70% local content value in the provision of materials, services and
equipment to the local oil and gas industry by 2010.
(3) To create an economic engine for growth, driving employment, wealth creation and
improved linkage between the Oil and Gas industry and other sectors of the Nigerian
economy.
(4) To enable a transformed Oil and Gas industry with well‐developed in‐country capacity
and local capabilities, a competitive supply and services sector and ultimately, the hub
for energy service delivery in Africa.
NIGERIAN CONTENT DIVISION POLICY/DIRECTIVES
In order for the NCD to effectively achieve or accomplish its policies and goals, it issued
directives to all operators, some of which are as follows;
(1) Detailed engineering design for all projects is to be domiciled in Nigeria.
(2) Project Management Teams and Procurement Centres for all projects in the Nigerian Oil
and Gas industry must be located in Nigeria.
(3) Henceforth, all operators and project promoters must forecast procurement items
required for projects and operational activities and forward the materials list to the NCD
on or before 31st January of every year. Also, a Master Procurement Plan (MPP) for
ongoing and approved projects should be submitted to the Nigerian Content Division
(NCD) of NNPC on or before 31st January of every year.
7 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
(4) Fabrication and integration of all fixed (offshore and onshore) platforms weighing up to
10,000 tons are to be carried out in Nigeria. For the fixed platforms (offshore and
onshore) greater than 10,000 tons, all items in directive 5, pressure vessels and
integration of the topside modules are to be carried out in Nigeria.
(5) Fabrication of all piles, decks, anchors, buoys, jackets, pipe racks, bridges, flare booms
and storage tanks including all galvanizing works for LNG and process plants are to be
done in Nigeria.
(6) All flow‐lines and risers must be fixed and must be fabricated in Nigeria except for
special cases to be demonstrated and approved by NCD.
(7) Assembling, testing and commissioning of all Subsea valves, Christmas trees12,
wellheads and system integration tests are to be carried out in Nigeria.
(8) All FPSO contract packages are to be bid on the basis of carrying out topside integration
in Nigeria. A minimum of 50% of the total tonnage of FPSO topside modules must be
fabricated in Nigeria.
(9) All third party services relating to fabrication and construction including but not limited
to NDT, mechanical tests, PWHT as well as certification of welding procedures and
welders must be carried out in Nigeria. Nigerian Institute of Welding must certify all
such tests in collaboration with international accreditation bodies.
(10) All operators and project promoters must ensure that recommendations for contract
awards in respect of all major projects being forwarded to NNPC/constituted boards of
such oil and gas companies for approval must include evidence of binding agreement by
the main contractor with Nigerian Content Subcontractor(s). Such agreements shall
indicate the cost and detailed scope including total man‐hours for engineering, tonnage
and man-hours of fabrication and relevant defining parameters for materials to be
procured locally as well as other services.
(11) All low voltage Earthling cables of 450/750 V grade and Control, Power, Lighting
Cables of 600/1000 V grade must be purchased from Nigerian cable manufacturers.
(12) Henceforth, all Line‐pipes, sacrificial anodes, Electrical switchgear paints, ropes, pigs,
heat exchangers and any other locally manufactured material and equipment must be
sourced from in‐country manufacturers.
(13) All carbon steel pressure vessels shall be fabricated in Nigeria.
12 An oil-well control device consisting of an assembly of fittings placed at the top of the well. [Definition extracted from Merriam-Webster’s Dictionary and Thesaurus, Encyclopaedia Britannica Ultimate Reference Suite].
8 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
(14) All seismic data acquisition projects, all seismic data processing projects, all reservoir
management studies and all data management and storage services are to be carried out in
Nigeria.
(15) All waste management, onshore and swamp integrated completions, onshore and swamp
well simulations, onshore fluid and mud solids control, onshore measurement while
drilling (MWD), logging while drilling (LWD) and directional drilling (DD) activities are
to be performed by indigenous companies having genuine alliances with multinational
companies.
(16) Coating of all Line‐pipes and threading of all oil country tubular goods (OCTG) are to
be carried out in Nigeria.
(17) All concrete barges and concrete floating platforms are to be fabricated in the country.
(18) Operation and maintenance of offshore production units, FPSO and FSO in particular,
are to be performed by Nigerian companies.
(19) All international codes and standards used in the industry are to be harmonized to
support utilization of locally manufactured products such as paints, cables, steel pipes,
rods, sections, ropes etc and to improve capacity utilization in local industries. Clauses
that create impediments for/exclude participation of local companies should not be
included in any ITT.
(20) Operators and project promoters must ensure that recommendations for contract award
for all drilling contracts shall include a binding agreement at Technical Evaluation stage
for the sourcing of Barite and Bentonite from local manufacturers.
(21) All projects and operations in the Oil and Gas industry must demonstrate strict
compliance with provisions in the Insurance Act 2003 and submit a certificate of
compliance issued by NAICOM to NCD as part of technical evaluation requirements for
insurance or reinsurance Contracts. In this respect, NAICOM verified Gross underwriting
capacity of Nigerian Registered Insurance companies must be fully utilized to maximize
Nigerian Content before ceding risk offshore.
(22) All projects and operations in the Oil and Gas industry must demonstrate strict
compliance with provisions of the Cabotage Act.
(23) All operators and service providers must make provisions for targeted training and
understudy programs to maximize utilization of Nigerian personnel in all areas of their
operations. All operators must therefore submit detailed training plans for each project
and their operations.
9 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
PART D: THE LOCAL CONTENT IN SUBSTANTIVE LAW.
The local content concept may be entrenched in a country’s national policy on the oil and gas
industry, contained in specific laws on local content or may be expressly set out as contractual
obligations in an agreement such as a production sharing contract. Policies which have no legal
backing lack justiciability or the force of law. So, in order for operators to be held legally
responsible for breach of any Local/Nigerian Content rule or principle, it is imperative for these
rules or principles to be enacted into laws. This is essential as breach of a Local Content law in
most cases attracts stiff penalties of the law which a mere policy would not have achieved. The
Local Content has survived through a line of laws, right from the Petroleum Act of 1969, the
Petroleum (Drilling and Production) Regulations and down to the Nigerian Content
Development Act of 2010. Also, some principles of the Local Content has found its way into
the Production Industry Bill which has not yet been enacted into law but, the discussion of the
Local Content would pervade the four aforementioned instruments.
PETROLEUM ACT, 1969
The Petroleum Act is among, if not the first, to contain quite a number or few
stipulations/provisions on Local Content. The Act stated in Section 2(2) that a licence or lease
under this section may be granted only to a company incorporated in Nigeria under the
Companies and Allied Matters Act or any corresponding law. It is important to note that while
primacy is given to incorporated companies in Nigeria; it did not exclude the granting of
licences to multinational companies, as the Minister has the discretion to do so. This is
buttressed by the use of the word “may” in the section. Also, in cases of assignments of an oil
prospecting licence from the licensee/assignor to the assignee, the Act provided that the minister
shall not give his consent to an assignment unless he is satisfied that; (a) the proposed assignee
is of good reputation, or is a member of a group of companies of good reputation, or is owned
by a company or companies of good reputation; (b) there is likely to be available to the
proposed assignee (from his own resources or through other companies in the group of which he
is a member, or otherwise) sufficient technical knowledge and experience and sufficient
financial resources to enable him effectually carry out a programme satisfactory to the minister
in respect of operations under the licence or lease which is to be assigned; and (c) the proposed
10 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
assignee is in all other respects acceptable to the federal government.13 This could be a
justification for not granting such an assignment from a Domestic company to a foreign one,
where the latter is not acceptable to the federal government in a case of reputation or in any
other respect.
The Act further states that the Minister may revoke any oil prospecting licence or oil mining
lease if the licensee or lessee becomes controlled directly or indirectly by a citizen of, or subject
of, or a company incorporated in any country which is (a) a country other than the licensee’s or
lessee’s country of origin; and (b) a country the laws of which do not permit citizens of Nigeria
or Nigerian companies to acquire, hold and operate petroleum concessions on conditions which
in the opinion of the Minister are reasonably comparable with the conditions upon which such
concessions are granted to subjects of that country. And in paragraph (2), “Nigerian company”
means a company incorporated in Nigeria or a company controlled directly or indirectly by
citizens of Nigeria.14 This is basically to protect the interests of the Nigerian or safeguarding the
Local Content.
Finally, Item 37 in the First Schedule of the Act provides that the holder of an oil mining lease
shall ensure that; (a) within ten years from the grant of his lease; (i) the number of citizens of
Nigeria employed by him in connection with the lease in managerial, professional and
supervisory grades (or any corresponding grades designated by him in a manner approved by
the minister) shall reach at least 75 per cent of the total number of persons employed by him in
those grades, and (ii) the number of citizens of Nigeria in anyone such grade shall not be less
than 60 per cent of the total, and (b) all skilled, semi-skilled and unskilled workers are citizens
of Nigeria. This is ultimately to ensure that services are provided more by Nigerians, thereby
enabling a substantial participation in the Oil and Gas Industry. This is also to provide for more
employment opportunities for Nigerians especially as the number of people undergoing/capable
of undergoing skilled, semi-skilled and unskilled labours are numerous in contrast to those who
undergo/are capable of undergoing white collar jobs.
PETROLEUM (DRILLING AND PRODUCTION) REGULATIONS
13 First Schedule, Item 16.14 First Schedule, Item 23(1).
11 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
The Petroleum (Drilling and Production) Regulations which was made pursuant to Section 9 of
the Petroleum Act also has provisions regulating the granting, assigning, revoking and renewing
of licences which have stipulations implementing and safeguarding the Nigerian/Local Content.
Regulation 1(2) (h) provides that every application for an oil exploration licence, oil
prospecting licence or oil mining lease, shall be accompanied by details of a specific scheme for
the recruitment and training of Nigerians. This ensures that even when the company’s
employees lack the required skills in any field, they would not be laid-off but would be
compulsorily trained and educated in the required field. Also, this ensures that more Nigerians 15
rather than expatriates are employed for if the scheme does not contain the required quota for
employing Nationals/citizens, the application for the licence would not be granted.
In addition, an application for the assignment of an oil prospecting licence or oil mining lease
(or of an interest in the same) shall be made to the Minister in writing and accompanied by the
prescribed fee; and the applicant shall furnish in respect of the assignee all such information as
is required to be furnished in the case of an applicant for new licence or lease.16 Also an
application for assignment or takeover of an oil prospecting licence or oil mining lease (or of an
interest in same) shall be made to the Minister in writing and accompanied by the prescribed fee
at the discretion of the Minister; and the applicant shall furnish in respect of the assignment, or
take over all such information as is required to be furnished in the case of an applicant for a new
licence or lease.17 This implies that the same requirement of submission to the Minister of a
specific scheme for training and recruitment which applies in the case of applying for a new
licence is also applicable in the case of assignment or takeover of an already existing licence.
Moreover, Regulation 26(1) provides that the licensee of an oil prospecting licence shall within
twelve months of the grant of his licence, and the lessee of an oil mining lease shall on the grant
of his lease, submit for the minister’s approval, a detailed programme for the recruitment and
training of Nigerians. It also stipulated that the programme shall provide for the training of
Nigerians in all phases of petroleum operations whether the phases are handled directly by the
lessee or through agents and contractors.18
15 The word “Nigerian” in Regulation 61(1) was defined to mean a citizen of Nigeria and “Non-Nigerian” and “Nigerianisation” should be construed accordingly.16 Regulation 4(a).17 Regulation 4(b).18 Regulation 26(2)
12 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
NIGERIAN OIL AND GAS INDUSTRY CONTENT DEVELOPMENT ACT, 2010
This Act takes precedence/primacy over all other existing laws in relation to all matters
pertaining to Nigerian/Local content in respect of all operations and transactions in the Oil and
Gas Industry.19 This in essence means that where there are situations of conflict or
inconsistencies between the Nigerian Content Development Act and any other law on Nigerian
Content, the former would have an overriding effect on the latter. Though, it would be subjected
to the Constitution of the Federal Republic of Nigeria. It also takes primacy and prevalence over
the functions of the NCD (Nigerian Content Division). Also, all other Nigerian content
regulatory bodies shall be taken over by the Nigerian Content Monitoring Board (the “Board”)
to be established under the Act.20 Section 2 of the Act gives a directive to all participants in the
Oil and Gas Industry that the Nigerian Content should be considered as an essential
element/feature in the overall project development and management philosophy for the
execution of projects.21 This is fundamental because the award of licences, permits and any
other interest in bidding for oil exploration, production and development including all other
activities in the sector is a major criterion when the provisions of the Act have been complied
with.
Operators22 are required to submit a Nigerian Content Plan as part of the conditions for bidding
for a licence, permit or other oil and gas interest and; such submission are also required to be
done before project execution to the Nigerian Content Monitoring Board.23 Section 12 provides
that the plan shall show how the operator and their contractors will give first consideration to
Nigerian goods and services. Also, the specific examples on how the first consideration is
considered and assessed by the operator in the evaluation of bids for goods and services are
required for the project. This is a remarkable provision in that, the local industry where there is
the availability of raw materials or services must first be utilized, then in a situation where such
utilization is factually impossible, resort could be had to foreign goods and services. However,
the strict application of the Nigerian Content would not be enforced or implemented where
Nigerian goods or services are of low quality. In other words, high quality would not be
19 Section 1 of the Act.20 Section 69.21 Section 2.22 Companies in this category include NNPC, its subsidiaries and joint venture partners and any Nigerian or foreign or international oil and gas company operating in the Nigeria oil and gas industry under any petroleum arrangement. See Section 109 of the Act. 23 Section 4.
13 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
sacrificed on the altar of Nigerian Content. Therefore, locally manufactured goods must meet
with or conform to industry specifications.24 Section 14 provides that where bids are within one
per cent (1%) of each other at commercial stage, the bid with the highest level of Nigerian
content shall be selected, so long as Nigerian content therein is at least five per cent (5%) higher
than its closest competition. But where a Nigerian indigenous company has the capacity to
execute a project, it shall not be disqualified on the basis that it is not the lowest bidder,
provided the value does not exceed the lowest bid price by ten per cent (10%). 25 Therefore, the
award of contract shall not be based solely or principally on the principle of the lowest bidder.
Also, the operator is mandated to submit to and secure the Board’s approval for advertisements,
prequalification criteria, technical bid documents, technical evaluation criteria and the proposed
bidders’ lists for all projects, contracts and purchase order in excess of US $1,000,000.26
Moreover, for the purpose of checking that the operators comply with the requirements for
Nigerian content, the operators are required/mandated by the Board to submit a variety of
documents to the Board for vetting at various stages, such as submission of documents during
the prequalification stage27 and submission of a bidders’ list which shall include a description of
corporate ownership – main shareholders by percentage bidders.28
In addition, in the provision/availability of employment and training for Nigerians, Sections 25,
26 and 27 require the operator or any other body submitting a plan, and before carrying out any
work or activity in Nigeria, to establish a project office in the catchment area where the project
is located.29 Further, by virtue of sections 28 and 29, first consideration for employment and
training in any project executed in the oil and gas industry shall be given to qualified Nigerians.
Therefore, any project plan submitted must specify or indicate an Employment and Training
plan. The operator is expected to file a quarterly report to the Board disclosing their
Employment and Training activities.30 In the event/circumstance that there are no qualified
Nigerians to be engaged, the Employment and Training plan shall disclose efforts to supply
such training locally or elsewhere.31 This to a tremendous extent serves as a catalyst to the
increase of local input (provision of services through human resources) in the economy as a
result of participation in the industry mainly by Nigerians. This is also concurrent with the fact
24 Section 1325 Section 1626 Section 1727 Section 2028 Section 2129 Section 2530 Section 29(c)31 Section 30
14 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
that there is job availability even though most applicants for the job lack the required skill. But
the qualification to this is that there must not be available qualified or skilled Nigerians for the
project before there is a need to train the unskilled ones. To further illustrate this , Section 31(1),
which is quite similar to Section 317(1) of the Petroleum Industry Bill, infra, provides for a
succession plan and Nigerianisation of positions, and it states that the operator shall submit to
the Board, for each of its operations, a succession plan for any position not held by Nigerians,
and the plan shall provide for Nigerians to understudy each incumbent expatriate for a
maximum period of four years and at the end of the four-year period, the position shall become
Nigerianised. This does not mean however, that the oil and gas industry would be totally
indigenized or completely expunged of expatriates, for Section 32 provides that for each of its
operations, an operator or project promoter may retain a maximum of five per cent (5%) of
management positions as may be approved by the Board as expatriate positions to take care of
investor interests. In order to ensure that the operators comply with above requirements, the Act
in Section 33(1) provides that the operators shall make an application to, and receive the
approval of, the Board before making any application for expatriate quota to the Ministry of
Internal Affairs or any other agency or ministry of the Federal Government. It goes on in
subsection (2) to state that the application shall be detailed and shall include; job titles,
description of responsibilities, the duration of the proposed employment in Nigeria and; any
other information required by the Board for purposes of implementing the provisions of the Act.
Section 34 provides that in relation to any project with budget excess of US $100,000,000, such
project shall contain a “Labour Clause” mandating minimum percentage of Nigerian labour that
must be used in specific cadres as may be stipulated by the Board. Further, the Act provides that
in the junior and intermediate cadre or any corresponding grade as designated by operators and
companies in the oil and gas industry in Nigeria, employment shall reserved for Nigerians. The
Act in Sections 36 through to 39 provided that there shall be a Research and Development Plan
which shall be submitted to the Board every six months and the plan shall outline a revolving
three to five-year plan for oil and gas related research and development initiatives which shall
be undertaken in Nigeria. It also provided that there shall be public calls for proposals for
research and development initiatives associated with the operator’s activities. This is principally
to promote the growth and development of research, science and technology in Nigeria. This
also spurs local input in these researches and encourages education in such research and
developments.
15 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
Apart from the training of Nigerians, the Act also in Section 40(1) provides that the Minister
shall make regulations establishing the minimum standards, facilities, personnel and technology
for training in the oil and gas industry. This is essential because the setting of standards
discourages its abuse by the operators. The Act also requires the operator to give full and
effective support to technology transfer by encouraging and facilitating the formation of joint
ventures, partnering and the development of licensing agreements between Nigerian and foreign
contractors and service or supplier companies.32 Therefore, every operator is expected to have a
plan on technology transfer, which must be submitted to the Board, and such a plan are to be in
accord with the country’s own plans and priorities. This is a good innovation as it helps a
nation, such as a developing one, to develop technologically.
Furthermore, the Minister is empowered to make regulations requiring any operator to set up a
facility, factory or such other operations within the country. This is in order to make them
engage in production, manufacturing or provision of any services otherwise imported in
Nigeria.33 This ultimately ensures that the Nigerian/Local content is safeguarded, in the sense
that, raw materials for the construction of these factories or facilities would be gotten from the
local market and; the manpower or human resources for the actual construction would be
Nigerians. To appreciate the efforts of foreign and indigenous companies that establish
facilities, factories and production units in Nigeria to execute production, manufacturing or any
other services otherwise imported, the Minister has been directed, in consultation with relevant
arms of government to arrive at an appropriate framework and tax incentives for them.34
In addition, the Act has wide provisions on services such as Insurance, Legal and Financial
services and; all operators, alliance partners and indigenous firms in Nigeria’s oil and gas
industry shall insure all related insurable risks on its operations and contracts with, and through
an insurance broker or brokerage firm or an insurer registered in Nigeria under the provisions of
the Insurance Act.35 This has a similar provision in Section 29 of the Petroleum Industry Bill,
infra. Therefore, no operator shall engage in offshore insurance without the written approval of
the National Insurance Commission.36 Such approval is possible only where the Nigerian local
capacity has been fully exhausted. This has the effect of boosting the country’s capital market.
Moreover, Section 51 of the Act provides that all operators and other entities engaged in any
operation, business or transaction in the Nigerian oil and gas industry requiring legal services
32 Section 4533 Section 4734 Section 4835 Section 4936 Section 50
16 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
shall retain only the services of a Nigerian legal practitioner or a firm of Nigerian legal
practitioners whose office is located in any part of Nigeria.37 In Section 51(2) every operator
shall submit to the board, every six months, its Legal services plan. Besides, a similar
requirement exists in Section 52 which deals with financial services and it states that operators
are required to retain only the services of Nigerian financial institutions or organizations, except
where, to the satisfaction of the Board, it is not practicable. Financial institutions include banks
and the depositing of huge quantum of money in Nigerian banks helps in economic growth.
This is so, as there would be availability of cash for investments either by the banks or by the
customers who take loans.
The Act prohibits the importation of welded products in Section 53. This helps the local
economy as the supply of welded products would have to be done by the domestic industry.
Also, by virtue of Section 55, the Joint Qualification System is to be established and going by
the provision of Section 57, it is an industry data bank and it will be used, inter alia, to disclose
upcoming projects and local capabilities.
Finally, the operator is required, by virtue of Section 60, to submit to the Board within 60 days
of each year, their annual Nigerian content performance report, covering all its projects and
activities for the year under review. Section 65 also imposes a duty on the operator to see that
its partners, contractors and sub-contractors are contractually bound to report Nigerian content
information to the operator, and directly to the Board, should the Board so demand. They are
also to allow the Board or its agents access to their records for purposes of assessing and
verifying their information. Similarly, the Board, by virtue of Section 62, is empowered to
embark on regular assessment and verification of the Nigerian content performance report filed
by all operators. The filing of reports only aids the Board to monitor and check the extent to
which the Nigerian/Local content is being executed or implemented by operators.
PETROLEUM INDUSTRY BILL
In spite of the fact that the Petroleum Industry Bill has not been enacted and therefore has no
force of law to be legally binding and enforceable as against any person who breaches its
provisions, it would not be irrelevant to highlight the important provisions in the Bill contiguous
with the Local Content. Besides it would be of legal significance just as the Nigerian Content
Development Act, when it finally becomes an Act.
37 Section 51(1)
17 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
Firstly, Section 3(1) of the Bill states that the management and allocation of petroleum
resources and their derivatives in Nigeria shall be conducted strictly in accordance with the
principles of good governance, transparency and sustainable development of Nigeria and to
maximize the economic value and benefits to the Nigerian people.
The Bill in Section 8(1) states that the Federal Government shall at all times promote the
involvement of indigenous companies and manpower and the use of locally produced goods and
services in all areas of the petroleum industry in accordance with existing laws and policies.
Assuming this was already an enforceable law, this section imposes a duty on the Federal
Government and where the Government does otherwise, which is not in accordance with
existing laws and policies, then such action could be challenged in the court of law. The same
Section also provides that where any contract for work or services is considered to be within the
capabilities of Nigerian Companies, in accordance with any law relating to Nigerian content, the
tender list shall be restricted to Nigerian Companies.38 Section 8(3) states that all companies
involved in any area of the upstream, midstream or downstream petroleum industry shall, as a
condition of their licence, lease, technical licence, commercial licence, contract or permit, as the
case may be, comply with the terms and conditions of any law relating to the Nigerian content
law in force at the time. In addition, Section 8(4) also stipulates that failure to comply with the
terms of any local content law as determined by the Inspectorate shall be a ground for
revocation of a licence, lease, contract or permit that may have been previously granted to the
company that failed to comply with the said terms.
It was also provided for that in order to accelerate the expansion of the Nigerian insurance and
capital market, the Directorate shall support policies that would make it mandatory for operators
in the petroleum industry in Nigeria to first utilize the Nigerian insurance and capital markets
before resorting to the international market, for the purpose of insuring their assets and raising
capital. This has the overall effect of spurring or stimulating economic growth as Nigerian
capital markets and Insurance would first be resorted to for insuring the assets of operators and
for providing capital to aid or promote investments within Nigeria.39
The Nigerian Petroleum Research Centre, which is to be established by virtue of Section 90(1)
of the Bill, has the function or power to organise training courses, workshops, seminars and
conferences for the purpose of promoting the functions of the Centre, capacity building,
increasing Nigerian content and sensitising the government and people of Nigeria on issues
38 Section 8(2).39 Section 29.
18 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
relating to the petroleum industry and; to advise the government on policy formulation on all
issues that are relevant to increase Nigerian Content levels in the Nigerian petroleum industry.40
The Bill in Section 121 made provisions for the establishment of the Petroleum Technology
Development Fund. The purpose of the Development Fund shall be for the purposes of training
Nigerians to qualify as graduates, professionals, technicians and craftsmen in the fields of
engineering, geology, science and management and other related fields in the petroleum
industry in Nigeria or abroad; and in particular, and without prejudice to the generality of the
foregoing, the funds shall be utilised to: (a) enhance and develop world-class infrastructure and
facilities in tertiary institutions that provide courses of study relevant to the oil and gas industry;
(b) provide scholarships and bursaries, wholly or partially in universities, institutions, and in
petroleum undertakings in Nigeria or abroad;( c) maintain, supplement, or subsidise such
training or education as specified in this subsection; (f) coordinate with research centres in
Nigeria and abroad on the adaptation of technology and innovations appropriate for the needs of
the Nigerian petroleum industry; (g) use existing human resources development facilities in
Nigeria for an expanded manpower development programme in the petroleum industry; (h)
where applicable, support skill acquisition programmes aimed at enhancing employment in the
petroleum industry in Nigeria; (l) promote in-country fabrication and manufacturing of
equipment used in the Nigerian petroleum industry; and m) generally facilitate the attainment of
100 percent Nigerian content in the petroleum industry.41
The Bill in Section 171(1) provides that there shall be the following licences or leases: (a) a
licence, to be known as petroleum exploration licence, to carry out prospecting on a non-
exclusive basis; (b) a licence, to be known as a petroleum prospecting licence, to carry out
petroleum exploration operations; and (c) a lease, to be known as a petroleum mining lease, to
search for, win, work, carry away and dispose of crude oil and natural gas. The Minister may,
subject to the provisions of the Act (Bill), and on the recommendations of the Inspectorate,
grant a petroleum prospecting license or petroleum mining lease and where the Minister decides
to grant such licence or lease: (a) it shall be to the winning bidder pursuant to the bid process
prescribed in Section 189 of the Act, provided the winning bidder has complied with all
requirements in the bid invitation; or (b) directly to the National Oil Company, where the
National Oil Company with the approval of the Inspectorate, has completed an open and
transparent bid process, pursuant to Section 189 of this Act, for potential contractors for
40 Section 91 (g) & (m).41 Section 124(1).
19 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
contracts with the National Oil Company pursuant to Section 172 of this Act, on the basis of a
model contract approved by the Directorate. Further, Section 171(5) provides that only
companies incorporated under the Companies and Allied Matters Act that comply with the
conditions prescribed by the Inspectorate shall be entitled to be licensees, lessees or contractor
parties under the terms of Part III of the Act. Moreover, the conditions prescribed in Section
171(5) shall include the requirement to be a company that qualifies pursuant to the qualification
criteria determined in the bid invitation. Such criteria shall be different for operators and non-
operators in the following respects: (a) the criteria for operator shall establish that the operator
shall have the financial means and the technical qualifications to carry out the upstream
petroleum operations in a safe manner and in accordance with the highest international
standards; and (b) the criteria for non-operator shall establish that the non-operator shall have
the financial means to adequately finance his obligations.42
The Bill in Section 192 which deals with assignment, mergers and acquisitions provides that,
subject to Subsection (6) of the Section, the Minister shall consent to an assignment if the
proposed assignee is able to show to the satisfaction of the Minister that: (a) the proposed
assignee is a company incorporated in Nigeria; (b) the proposed assignee is of good reputation;
(c) the proposed assignee has sufficient technical knowledge, experience and financial resources
to enable it to effectively carry out the responsibilities under the license or lease which is to be
assigned; and; (d) the proposed assignee if it functions as operator, such assignee shall have
proven operating experience with respect to operations to be carried out under the license or
lease which is to be assigned. It is worthy of note that Section 192(4) provides that where a
licensee, lessee, or contractor party proposes to transfer its stake to another company, or merges,
either by acquisition or exchange of shares, including change of control of parent companies
outside Nigeria, it shall be treated as an assignment in Nigeria and shall be subject to the terms
and conditions of this Act and any regulations made under it. This has the implication of
subjecting the assignee company of the licensee incorporated in Nigeria to the jurisdiction of
Nigeria.
Section 193(1) is quite similar to Item 23(1) in the First Schedule of the Petroleum Act, and it
states that the Minister may revoke a license or lease if the licensee or lessee: (a) is controlled
directly or indirectly by a person who is a citizen of, or subject of any country which is a
country the laws of which do not permit citizens of Nigeria or Nigerian companies to acquire,
hold and operate petroleum concessions or contracts on conditions which the Directorate finds
42 Section 171(6)
20 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
to be reasonably comparable to the conditions upon which such concessions or contracts are
granted to subjects of the country; (b) in the opinion of the Inspectorate, is not conducting
operations continuously and in a vigorous and businesslike manner and in accordance with good
oil field practice; (c) is not fulfilling his or her obligations under the special conditions of his or
her licence or lease; (g) has not complied with such other specific requirements for which
revocation is a consequence under this Act.
Section 205(1) provides that any new project or modification or expansion of an existing
project with respect to midstream petroleum operations shall require prior to any construction or
operation a project approval certificate (“project approval certificate”) issued by the Agency.
But the project approval certificate of the Agency shall, inter alia, consist of an approval of the
Nigerian Content Plan for the project pursuant to Part VI-B of the Act.43 Besides, any new
project or modification or expansion of an existing project with respect to downstream
petroleum operations shall require, prior to any construction or operation a project approval
certificate issued by the Authority44 and such project approval certificate shall consist of an
approval of the Nigerian Content Plan for the project.45 Furthermore, in subsection 3, a project
approval certificate pursuant to subsections (1) and (2) of this section shall only be granted to a
company that has been incorporated under the Companies and Allied Matters Act, and that has
complied with all the conditions prescribed by the Authority. It is noteworthy that a Nigerian
content plan shall not be required for independent pipelines and independent depots as
contemplated by section 274.46 Also, a Nigerian content plan shall not be required for projects
requiring an investment below the level established in subsection (1) of section 313 of this
Act.47
Section 264(a) provides that every holder of a commercial licence to carry out refining
operations shall supply to the downstream domestic market refined petroleum products at fair
market value. This is so, just to avoid hiking of prices of commodities. Section 297 stipulates
that no licensee or any other person having the ability to influence the terms and conditions on
which licensed activities are performed and the price at which petroleum products are supplied
shall: (a) make it a condition for the provision or supply of a product or service that any person
acquiring such a product or service shall be required to acquire or not to acquire any other
product or service either from the licensee or from any other licensee, person or entity; (b) enter
43 Section 205(2)(e)44 Section 206(1)45 Section 206(2)(e) 46 Section 206(4)47 Section 206(5)
21 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
into any contract, arrangement collaboration or understanding, whether legally enforceable or
not, which provides for or permits the fixing of tariffs, prices or charges for the purpose of, or in
such a manner as to, manipulate market prices or the price of any product or service; (c) engage
in or conduct its activities, directly or indirectly, for the purpose of market sharing; (d) permit,
allow, influence the direct or indirect exclusion of, or the imposition of any embargoes or
boycotts on another licensee, operator or supplier of equipment or apparatus; or (e) engage in
any other conduct that the Authority deems anti-competitive. This in a nutshell, prevents and
discourages contracts in restriction of trade and tries to promote healthy competition between
licensees selling the same product.
It is remarkable that Section 311(1) provides that participation by the Federal Government in
accordance with the provisions of this Act or any law in force shall not be applicable to
petroleum operations carried out by indigenous oil companies whose aggregate production from
petroleum operations is not more than ten thousand barrels per day of crude oil or its natural gas
equivalent. This is remarkable because unlike the Joint Venture Arrangements (JVA) where the
government participates actively in petroleum operations, participation is denied to the
government when it comes to petroleum operations involving the indigenous companies.
Section 312(1) also provides that the Minister in consultation with the Inspectorate, shall issue
regulations prescribing clearly defined targets and programmes for continuous increase of the
level of indigenous participation in the Nigerian petroleum industry and to generally give effect
to the provisions of this Act which regulations shall include: (a) targets for indigenous oil and
gas reserves; and (b) production personnel content and measurable parameters for determining
the level of indigenous participation.
Section 313(1) states that a development plan pursuant to section 178 of the Act or a project
approval certificate pursuant to sections 205 and 206 of the Act, shall not be approved without
an approved Nigerian content plan, where such plan relates to a proposed project involving an
investment of US $ 10 million or higher based on the assessment of the Inspectorate, Agency or
Authority as the case may be. It is noteworthy, in depicting the safeguarding of the
Nigerian/Local Content that, Section 313(2) provides that the Nigerian content plan pursuant to
subsection (1) of section 313 shall contain commitments as defined in sections 315 through
319 of this Act with respect to: (a) purchase of Nigerian goods and services; (b) employment of
Nigerian citizens; (c) training and education; (d) research and development. This ensures
employment opportunities and local input in terms of supply of services, in cases where an
operator wants to execute a large project. In addition, Section 315(1) states that with respect to
22 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
paragraph (a) of subsection (2) of section 313 of the Act, the Nigerian content plan shall
contain with respect to the proposed project description of the classes of capital and operating
costs and the percentage of Nigerian content pursuant to applicable legislation and regulations.
Section 315(2) provides that the Nigerian content plan shall describe the measures the
proponent has undertaken to maximize the purchase of Nigerian goods and services and the
future measures that the proponent intends to apply in order to increase purchase of Nigerian
goods and services, including the submissions of the Legal Services Plan and the Financial
Services48 Plan.
In relation to employment and personnel, Section 316 (1) states that the proponent shall submit
with his Nigerian content plan an Employment and Training Plan. Subsection (2) provides that
the proponent of an employment plan shall commit to cross-posting of Nigerian citizens to its
foreign operations, where expatriates are used to fill positions in Nigeria. Subsection (3) in
addition states that projects in excess of US $ 100 million shall include a Labour Clause.
Subsection (4) emphasizes that a licensee, lessee and commercial licensee shall at all times
comply with the employment provisions of applicable legislation and regulations.
Moreover, Section 317 (1) states that the Employment and Training Plan pursuant to section
316 of the Act, shall include provisions that the proponent at its own expense provide a
reasonable number of personnel of the Institutions and the Service with on-the-job training ,
including on-the-job training in its main office or in other international locations and on the job
training shall involve the trainees working with experienced expatriate professionals or
managers of operator in order to gain hands-on knowledge and experience in the handling of
actual situations as they occur in a particular specialty, as well as to gain a better understanding
of management styles and the needs and constraints of such petroleum company.
Finally, in relation to penalties, Section 321(1) states that any proponent, lessee, licensee,
commercial licensee or their contractors and subcontractors that do not implement all or part of
the approved Nigerian content plan or section 320 of the Act, shall be fined US $ 100,000 per
day adjusted with the adjustment factor pursuant to section 331 of the Act. Also, Section 321(2)
provides that where the non-compliance (by a lessee pursuant to Part III of the Act or licensee
pursuant to Part IV of the Act, or contractor or subcontractor of the lessee or licensee) with the
Nigerian content plan continues beyond a period of six (6) months, the respective lease or
license may be revoked pursuant to the provisions under this Act.
48 Financial services include deposit taking, checking accounts, loans, or various investment services.
23 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
PART E: CONCLUSION
For Nigerian operating companies, the Nigerian Oil and Gas Industry Content Development Act
offers a great opportunity for growth and expansion. A Nigerian company is defined under the
Act as a company registered under the Companies and Allied Matters Act and having not less
that 51% Nigerian shareholding. Such a company is to be given first consideration in the award
of oil blocks, oil field licences, oil lifting licences and in all project awards in the Nigerian oil
and gas industry.49 These provisions should ensure a steady growth in Nigerian participation in
the industry as well as increase local capacity and industry knowledge and expertise.
In addition, Indigenous service companies stand to benefit tremendously from the provisions of
the Act. This is because they are one of the key targets of the Nigerian content policy. Skills
development and capacity building in core competencies such as Petroleum Engineering and
Engineering Support Services, Engineering Designs, Fabrication, Manufacturing and
Installation, Seismic Data Processing, Drilling and Exploration Services, Maintenance Services,
Health, Safety and Environment etc., will ensure increased employment opportunities, minimal
deployment of foreign expertise in project execution, and overall economic development.
By virtue of section 3(2) of the Act, exclusive consideration is to be given to Nigerian
indigenous service companies which demonstrate ownership of equipment, Nigerian personnel
and capacity to execute the required work to bid on land and swamp operating areas of the
Nigerian oil and gas industry for contracts and services as contained in the schedule to the Act.
The more compliant they are in relation to Nigerian content i.e. their management,
shareholding, personnel, etc, the better their chances are at being awarded bids.50 This is so even
when they are not the lowest financial bidder provided, the company in question has the
capacity to execute the job.51 The same goes for Nigerian indigenous contractors and companies
in the supply of goods to the industry.
Aside from these special considerations in project awards, regulations and an enabling
framework is being put in place to ensure utilization and steady growth of Nigerian companies
in the industry’s service sector. These include:
a. The establishment of an oil and gas e-marketplace which shall facilitate the effective
implementation of the Nigerian content policy.52
49 Section 3(1) of the Nigeria Content Act50 Section 14 of the Nigeria Content Act51 Section 16 of the Nigeria Content Act52 Section 54 of the Nigeria Content Act
24 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
b. The establishment of a Joint Qualification System which shall constitute an industry data
bank.53
c. The establishment of the Nigeria Content Consultative Forum to provide a platform for
information sharing and collaboration in the industry.54
d. Establishment of the Nigerian Content development Fund to fund the implementation of the
Nigerian Content policy.55
This would involve training and empowerment programmes for local service providers as well
as deployment of funds for the various government initiatives directed at increasing Nigerian
content in the industry. These are areas where the NNPC has also developed several key
initiatives such as the launch of the Nigeria Content Support Fund and the introduction of the
Nigerian Petroleum Exchange.
In addition to these, prospective investors can take advantage of the special consideration given
to Nigerian companies especially in the award of bids to form strategic alliances and
partnerships which will be beneficial to all parties concerned.
Moreover, apart from the fact that the Nigerian/Local content, in general, contributes to the
GDP through the increase of goods and services produced, creates the availability of job
opportunities for Nigerians, instigates healthy local competition in the market where these
goods and services are being supplied, spurs investments and boosts the capital market, it also,
through the availability and realization of income, helps in accrual of revenue to the government
either directly through the proceeds of petroleum resources or, through the taxing of the income
of the oil and gas companies and the personal income of its employees.
To put it in a few words, the Nigerian/Local Content through the equal participation of
Nigerians in the oil and gas industry, not only helps to develop the oil and gas sector, but other
sectors of the economy. Of course, the feasibilibility of these depends to a large extent on good
administrative or executive implementation.
CONTRIBUTORS
ERINLE OLUWFEMI. O
ANJORIN ABDUL-GHANIY
53 Section 55 of the Nigeria Content Act54 Section 57 of the Nigeria Content Act55 Section 107 of the Nigeria Content Act
25 LOCAL CONTENT DEVELOPMENT LAW AND POLICY IN THE OIL AND GAS SECTOR.
ADEKOLA JUMOKE
ADEGOKE OLUWAFUNMIBI
OHAKANU JUSTUS
SHODEINDE SEYE
ONWUKEME OYEKACHI
SANNI JIDE
AWORETAN SEUN
SUPERVISOR/LECTURER
DR. YEMI OKE
FACULTY OF LAW,
UNIVERSITY OF LAGOS.